Even for the most cautious and conscientious design professionals, mistakes are made. Things go wrong. Disputes arise.
It’s a sign of the times that design professionals increasingly are becoming targets for claims and lawsuits. Litigious clients. Injured parties. Construction firms with “cost-recovery” programs trying to re-coup lost profits. Claims can come from anywhere and anyone – all hoping to take advantage of a design professional’s assets or professional liability insurance policy. When an issue arises, seek “Pre-claims Assistance” early.
What’s the difference between a pre-claim and a claim you might ask? Every insurance policy is unique. So, always check with your insurance agent to understand your policy terms. But generally, the difference is found in the definitions in your policy.
Typically, an insurance policy defines a claim as a “demand” against the insured for money or services that caused a loss or damages.
A pre-claim is merely an issue or circumstance reported to the insurer that the professional believes could lead to a claim. What kind of issues or circumstances? Obviously, when there’s been an accident or loss on the job, pre-claims assistance should be sought immediately. But it could be something simple. Something much less obvious.
Maybe you’ve encountered unexpected and unique soil conditions on a job site. Or you’ve learned the contractor or a subcontractor is not following specifications. Maybe it’s an ethical issue involving the contractor or subcontractor. Maybe an inspector, governmental entity or architectural review committee is delaying the project by unreasonably refusing to approve your work.
“Pre-claim Assistance” should be considered when any issue the policyholder believes could lead to a claim. Usually, it’s best to report the issue to the agent or broker first. Let them help you follow the steps set out in the insurance policy to obtain “Pre-claim assistance.”
Again every policy is unique, but typical requirements might include:
- Written notice on how the professional learned of the issue;
- What work the professional is performing;
- A description of what happened;
- Names of the potential claimants; and
- A summary of the potential damages or injuries.
Some professionals make the mistake of not seeking “Pre-claim Assistance” quickly enough because they are concerned that reporting an issue will increase their future premiums. Always check with your agent to clearly understand your policy, but seeking “Pre-claim Assistance” is sound, risk-management best practice regardless of the effect on future premiums. But typically, the expenses for “Pre-claim Assistance” are incurred by the insurer, paid outside of the policy limit, and are not subject to a deductible.
Why would insurers do this? Because experience has proven that early intervention by an experienced, pre-claims specialist may help resolve the claim before it develops into a lawsuit, saving the insurer – and the insured – money. Involving experienced claims professionals during the pre-claims period can help prevent costly mistakes that increase the insurer’s ability to settle a claim later, or make it more difficult to defend a claim that develops into a lawsuit.
Sometimes during “Pre-claim Assistance,” the insurer may pay for legal counsel, experts, testing or mediators if the insurer believes they determine it could mitigate the loss or avoid a claim altogether. The professional also benefits in other ways. By seeking “Pre-claim Assistance,” the design professional can lock in the insurance policy limits in effect when the issue is report. Also, expenses incurred by the insured during “Pre-claim Assistance” may count toward the insured’s deductible.
Design professionals deal with problems and conflicts on projects daily. Fortunately, few will ever lead to a claim. But a design professional should trust their instincts and experience to know when an issue or unusual circumstance could lead to a costly claim or lawsuit. Act quickly and decisively to take advantage of “Pre-claim Assistance,” and hopefully avoid a claim altogether.
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Timothy B. Soefje is Managing Member and head of the professional liability section at the boutique firm of Seltzer │Chadwick │Soefje, PLLC. in Dallas, Texas. For regular information about professional liability matters, follow him on Twitter at @TimSoefje. For more information, visit us at www.realclearcounsel.com or contact Mr. Soefje at email@example.com